News Release
DC15-36
30 January 2015
BT ANNOUNCES RESULTS OF PENSION FUNDING VALUATION
BT and the Trustee of the BT Pension Scheme (BTPS, or the ‘Scheme’) have reached
agreement on the 2014 triennial funding valuation (the ‘2014 valuation’) and recovery plan.
The funding deficit at 30 June 2014 is £7.0bn with the increase from the 2011 valuation
reflecting the low interest rate environment at the valuation date.
A 16 year recovery plan has been agreed reflecting BT’s long-term and sustainable cash flow
generation. Over the next three years payments will total £2.0bn. BT will pay £1.5bn by the
end of April 2015 out of existing cash and current investment balances which totalled
£2.8bn at 31 December 2014. This will be followed by £250m in each of the years to March
2016 and March 2017.
For the seven years from 2018 to 2024 BT will make payments in line with the 2011
agreement. These will be followed by five annual payments of £495m through to 2029 and a
final payment of £289m in 2030.
BT and the Trustee will review the funding of the Scheme in the normal way at the 2017
valuation. If the deficit is lower than the remaining recovery plan, that reduction will be
reflected in the new recovery plan.
BT has agreed to continue to provide the Trustee with certain protections as detailed in the
notes below. BT has also discussed details of the potential acquisition of EE with the
Trustee.
Tony Chanmugam, BT Group Finance Director, said: “I am pleased that we have agreed the
2014 triennial funding valuation and recovery plan with the Trustee. This agreement is a
good outcome for the Scheme’s 300,000 members and BT. The increase in the deficit from
the 2011 valuation reflects the low interest rate environment. We have agreed a 16 year
recovery plan reflecting the strength and sustainability of our future cash flow generation.
We remain focused on our prudent financial policy of investing in our business, reducing net
debt, supporting the pension fund and paying progressive dividends.”
Paul Spencer CBE, Chairman of the BTPS Trustee, said: “The Trustee is pleased to have
reached agreement with BT on the valuation of the Scheme as at 30 June 2014. The
valuation reflects the economic and market conditions at the valuation date and the
improved financial position of BT. The agreement with BT secures an updated funding plan
for the Scheme supported by a range of enhanced protections.”
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www.btplc.com
Enquiries
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About BT
BT is one of the world’s leading providers of communications services and solutions, serving
customers in more than 170 countries. Its principal activities include the provision of
networked IT services globally; local, national and international telecommunications
services to its customers for use at home, at work and on the move; broadband, TV and
internet products and services; and converged fixed/mobile products and services. BT
consists principally of five lines of business: BT Global Services, BT Business, BT Consumer,
BT Wholesale and Openreach.
For the year ended 31 March 2014, BT Group’s reported revenue was £18,287m with
reported profit before taxation of £2,312m.
British Telecommunications plc (BT) is a wholly-owned subsidiary of BT Group plc and
encompasses virtually all businesses and assets of the BT Group. BT Group plc is listed on
stock exchanges in London and New York.
For more information, visit www.btplc.com.
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Detailed information
1. Funding valuation
1.1. BT and the Trustee of the BTPS have reached agreement on the approach to the 2014
valuation.
1.2. The funding deficit at 30 June 2014 is £7.0bn (£5.6bn after tax relief).
1.3. A summary of the funding position and principal assumptions is shown in the table
below:
June
2011
June
2014
Comment
36.9
40.2
Scheme generated investment returns of
5.8% pa over the period
Liabilities (£bn)
(40.8)
(47.2)
Increase in 2014 liabilities mainly due to
significant falls in real interest rates
Deficit (£bn)
(3.9)
(7.0)
Funding level
90.4%
85.2%
Contribution rate for
future benefits (as % of
pensionable salaries)
13.5%
16.0%
Contribution rate to meet the benefits of
current employed members to be increased
to 16% from 1 April 2015 through to the
next valuation date
Equivalent real
discount rate
2.0%
1.0%
Prudent view of future returns on the
expected asset portfolio, reduction
primarily reflects falls in real interest rates
Average RPI inflation
3.2%
3.5%
Long-term expectations reflecting market
data
CPI inflation (longterm)
2.2%
2.5%
1.0% margin below RPI compares to Office
for Budget Responsibility projection of 1.3%
to 1.5%. The Bank of England’s long-term
CPI inflation target is 2.0%
Life expectancy
2014 valuation makes allowance for additional improvements in
future life expectancy compared with 2011 valuation
Assets (£bn)
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1.4. Average life expectancies at the 2014 valuation date, for members 60 years of age, are
as follows:
Male in lower pay bracket
June 2011
assumptions
June 2014
assumptions
26.3
26.1
27.5
Male in medium pay bracket
28.1
Male in high pay bracket
29.0
Female in lower pay bracket
28.9
28.7
29.2
Female in high pay bracket
Average improvement for a member retiring at
age 60 in 10 years’ time
1.2
1.3
1.5. Deficit payments of £2.65bn have been made since the 2011 valuation and the
Scheme’s assets have grown by more than assumed under the 2011 funding assumptions.
The low interest rate environment at the valuation date has resulted in a higher value being
placed on the Scheme’s liabilities which has more than offset the improvements in the
Scheme’s assets.
1.6. In line with developing market practice and reflecting a more sophisticated
methodology, the discount rate at 30 June 2014 has been derived from prudent return
expectations above a yield curve based on gilt and swap rates. The discount rate reflects
views of future returns at the valuation date. This gives a prudent discount rate of 2.1% pa
above the yield curve initially, trending down to 0.6% pa above the curve in the long-term.
1.7. The existence of the Crown Guarantee has not been taken in to account in reaching this
agreement.
1.8. The next funding valuation will have an effective date no later than 30 June 2017.
2. Funding
2.1. BT will make a lump sum payment of £1.5bn by the end of April 2015, followed by
payments of £250m pa in each of the years to March 2016 and 2017. The recovery plan is
shown in the table below.
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Year to
31 March
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
2011 agreement
£m *
655
666
676
688
699
711
724
670
670
670
2014 agreement
£m
1,500 **
250
250
688
699
711
724
670
670
670
495
495
495
495
495
289
* including contingent contributions
** payable by 30 April 2015
2.2. The £1.5bn lump sum payment will be split over March and April 2015. We expect
£800m to £900m to be paid in March 2015, receiving tax relief at 21%, with the balance
payable in April receiving tax relief at 20%. There will be no impact on the group’s tax charge
in the income statement. There will be a benefit from lower cash tax payments up until the
second quarter of 2016/17.
2.3. BT and the Trustee will review the funding of the Scheme in the normal way at the next
valuation. If the deficit is lower than the remaining recovery plan, that reduction will be
reflected in the new recovery plan.
2.4. The valuation documentation will be submitted to the Pensions Regulator within ten
working days of its completion as required by legislation.
3. Other protections
Other features of the agreement with the Trustee which provide support to the Scheme are:
3.1. Shareholder distributions
3.1.1. Continuation to the protection agreed at prior valuations with terms amended to
provide matching payments to the Scheme in the event that shareholder distributions
exceed a threshold. The threshold allows for 15% pa dividend per share growth plus £300m
pa of share buybacks on a cumulative basis.
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3.1.2. BT has agreed to consult with the Trustee if it considers share buybacks in excess of
£300m pa or making a special dividend.
3.1.3. These provisions apply from 29 January 2015 until the finalisation of the next
valuation, or 31 March 2019 if earlier.
3.2. Material corporate events
3.2.1. Continuation of the protections agreed under the 2011 valuation, such that in the
event that BT generates net cash proceeds greater than £1bn from disposals (net of
acquisitions) in any 12 month period, BT will make additional contributions to the Scheme
equal to one third of those net cash proceeds.
3.2.2. BT has agreed to consult with the Trustee if: it considers making acquisitions with a
total cost of more than £1bn in any 12 month period; it considers making disposals of more
than £1bn; or it considers making a Class 1 transaction (acquisition or disposal); or it is
subject to a takeover offer.
3.2.3. BT has also agreed to advise the Trustee should there be other material corporate
events which may impact BT’s covenant to the Scheme.
3.2.4. These provisions apply from 29 January 2015 until the finalisation of the next
valuation, or 31 March 2019 if earlier.
3.3. Negative pledge
3.3.1. Continuation of the protection agreed under the 2008 valuation, that future creditors
will not be granted superior security to the Scheme in excess of a £1.5bn threshold, to cover
both BT plc and BT Group plc. This provision applies until the deficit reduces to below
£2.0bn at any subsequent funding valuation.
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